By Ed Frankl
The U.K.'s jobs market continued to creak in the third quarter, making it more likely that the Bank of England will cut borrowing costs in December after it narrowly chose to keep rates on hold last week.
Unemployment rose to 5.0% in the three months through September from 4.8% in June-August, the U.K.'s Office for National Statistics said Tuesday, the highest level since the quarter through February 2021.
The jobless rate has risen from 4.4% at the start of the year and was higher than expectations of 4.9% from economists polled by The Wall Street Journal.
Pay growth edged down, with the BOE's favored measure of private-sector wage growth, excluding bonuses, falling to 4.2% from 4.4%, the ONS said.
The BOE last week kept its key rate on hold in a 5-4 vote, with fears over lingering high inflation overcoming worries about the loosening labor market.
But policymakers agreed that there has been an easing of pay growth and that households and businesses could stay cautious about spending and investment, holding back demand and weighing on employment prospects further.
"Activity in the economy is below its potential. This is clear in the labor market, where the number of job vacancies has fallen and employment growth has stalled," the central bank said.
Those warning signs could lead to inflation eventually falling below the BOE's 2% target, from 3.8% in September, the bank said. The BOE expects unemployment to peak at 5.1% in the second quarter of 2026.
All in all, it could be enough to push policymakers to cut its benchmark rate for the first time since August when it meets again next month.
The data strengthens the BOE's case to resume cutting interest rates next month, Yael Selfin, chief economist at KPMG UK, said in a note to clients.
"Moderating wage pressures and a softening labor market are expected to bring wage growth closer to levels consistent with the inflation target by the end of the year," she said.
The BOE, like the Federal Reserve in the U.S., is balancing a weakening jobs market with a recent pickup in inflation.
There are signs that the jobs market is steadying. Private-sector employment fell in October at the slowest pace in over a year, according to monthly purchasing managers' index data. That might indicate that the impact of an April rise in payroll taxes is fading.
Early estimates suggest a small increase in vacancies of 2,000 in the three months through October, the ONS said.
Nevertheless, employers might hold off until clarification of the government's coming budget announcement due later in November, which is expected to lead to tax rises.
"With considerable budget uncertainty facing businesses, we can't imagine many firms will have rushed to increase staffing levels in this environment," Investec economist Ellie Henderson said in a note ahead of the jobs data.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
11-11-25 0309ET
